If you’re wondering who owns “Big Oil,” chances are good
the answer is “you.” If you have a mutual fund account,
and 59 million U.S. households do, there’s a good chance
it invests in oil and natural gas stocks. If you have an
IRA or personal retirement account, and 46 million U.S.
households do, there’s a good chance it invests in energy
stocks. If you have a pension plan, and 61 million U.S.
households do, odds are it invests in oil and natural gas.

Contrary to popular belief, and what some politicians might
say, America’s oil companies aren’t owned just by a small
group of insiders. Only 2.9 percent of industry shares are
owned by corporate management. The rest is owned by
tens of millions of Americans, many of them middle class.

A strong oil and natural gas industry is a vital part
of the retirement security for millions of Americans.
State pension fund investments in oil and natural gas
companies are providing strong returns for teachers,
firefighters, police officers, and other public pension
retirees, according to a Sonecon study.3 Returns on oil
and natural gas assets in the top two state funds in 17
states, which include more than half of all the people covered
by state and local pension plans in the U.S., averaged $2.30 for each dollar invested compared to $1.68
for other assets in these funds from 2005 through 2013.

The oil and natural gas industry is a major contributor
to the health of these funds, many of which face huge
future payout obligations. While oil and natural gas stocks made up 4 percent of public employee pension plan holdings, they accounted for 8 percent of the returns, outperforming other investment classes by two-to-one. During good economic times, or challenging ones, oil and natural gas investments far outperformed other public pension holdings.

Profit margins provide one useful way to compare financial performance among industries of all sizes.

Oil and natural gas earnings are typically in line with the
average of other major U.S. manufacturing industries,
but not recently.

Published data for 2011 to 2015
shows the oil and natural gas industry lost on average
3.9 cent for every dollar of sales in comparison with all
manufacturing which earned on average 8.7 cents for
every dollar of sales.

Growth in the world’s supply of crude oil has outpaced
the growth in global demand, which has led to sharply
lower prices, and lower earnings.

Over the last five years, average earnings for the oil and
natural gas industry have been below the rest of the
U.S. manufacturing industry, averaging about 4 cents
for every dollar of sales compared to nearly 9 cents
for manufacturing. By the second quarter of 2015, the
average for the oil and gas industry fell to minus 21.9 cent
on the dollar compared to 7.1 cents on the dollar for all
U.S. manufacturing as the price collapse of crude oil took
its toll on U.S. oil producers.

Like other industries, the oil and natural gas industry
strives to maintain a healthy earnings capability. It does
so to remain competitive and to benefit its millions of
shareholders, across the country and in all walks of
life. Healthy earnings also allow the industry to invest in
innovative technologies that improve our environment
and increase production to keep America going strong –
even as it leads the search for newer technologies, and
new sources of energy that will provide a more secure
tomorrow.

Even the largest U.S. based international investor
owned company accounts for just a small fraction of the
world’s oil and natural gas production. This limits U.S. oil
companies’ influence on world crude oil prices.

U.S. based international investor owned companies
face stiff competition for the world’s natural gas market
share. But this is tempered by the fact that the natural
gas market is more regional in nature than the global
crude oil market.

Significant oil and gas discoveries that are announced
today often result from investments begun by companies
as far back as a decade or more ago. Since the year
2000, our industry invested over $3 trillion dollars
in U.S. capital projects to meet the growing demand
for oil and natural gas. The worldwide economic
downturn, along with lower oil and natural gas prices
and tight credit markets, caused some oil and natural
gas producers to cut their capital budget plans in 2009. The Oil & Gas Journal estimates capital spending on U.S. projects will decline again in 2015 as the value of oil has fallen almost in half over the past year leaving many companies with less to invest.

Planning and investment cannot be turned on and
off like a spigot, without entailing huge, potentially
non-recoverable costs and delaying urgently needed
projects. Because the industry must plan and operate
under these long lead times, it is hypersensitive to
minimizing risk over the course of its investments. It is
crucial for an industry that must manage such huge
risks that government provide an energy policy and tax
framework that encourages investment, rather than
discourages it.

Because the oil and natural gas industry is massive
and requires huge investments, its earnings contribute
greatly to the American economy and way of life. They
allow companies to reinvest in the facilities, infrastructure
and new technologies that keep America going strong
well into the future while generating returns that meet
shareholders’ expectations.

The oil and natural gas industry is probably one of the
world’s largest industries. Its revenues are large, but so
are its costs of providing consumers with the energy
they need. Among those are the cost of finding and
producing oil and natural gas and the costs of refining,
distributing and marketing it.

These costs remain huge, regardless of whether
earnings are high or low – as was the case throughout
most of the 1990s and during other industry downturns.
The return on investment (net income/net investment
in place) for the oil and natural gas industry has been lower than the returns for the S&P industrials.

Oil and natural gas companies are taking action now to reduce greenhouse gas emissions and investing in the technologies and fuels that will reduce them even more in the future.

End-Use: America’s oil and natural gas companies are
investing in efficiency improvements and alternatives
and are advising companies in other industrial sectors
how to use energy more efficiently. Through such
end-use technologies as combined heat and power –
using excess heat from refinery processes to produce
additional energy – refiners are becoming more energy
efficient, reducing both energy use and emissions.

Between 2000 and 2014 the industry invested $50 billion in end-use technologies, including advanced technology vehicles, efficiency improvements, combined heat and power, gas flare reduction technologies and carbon capture and sequestration. This represents approximately 30 percent of all the investments made in these technologies in North America.

Non-Hydrocarbon: We are a major provider of the
green jobs that are in the news today. The oil and natural
gas industry accounts for about one out of every six dollars
of all the investments made in non-hydrocarbon fuels
since 2000. The industry’s top investments are in wind
and biofuels. Expenditures were also made in solar,
geothermal, and landfill digester gas.

Fuel Substitution: The oil and natural gas industry has
spent nearly $25 billion developing substitute and less
carbon intensive fuels, such as liquefied natural gas and
reducing fugitive gas emissions. This investment in fuel
substitution technologies represents 51 percent of the
total invested in this technology class.

The oil and natural gas industry is very capital intensive
and devotes the largest share of its earnings to add
new property, plant and equipment to its upstream and
downstream operations.

When companies repurchase stock, they are supporting
the equity value of the company. This in turn helps the
owners of the companies – retirees, future retirees and
millions of Americans who have invested their hard earned
savings on the expectation of a reasonable
return on their investment.

It is the responsibility of company officials to build
value for shareholders; one way to do this is through
stock repurchases. Earnings are also used for paying
dividends which additionally benefit shareholders.

While the share of stock repurchases in the oil and gas
industry has increased in recent years, it has averaged
nearly half of that for the S&P industrial group. For the
last 15 years, the oil and gas industry spent an average
of 28 percent of net income on stock repurchases while
the rate for the S&P industrials was 51 percent.

Over the past ten years U.S. oil and natural gas
companies have paid considerably more in taxes than
the average manufacturing company. From 2011 to
2015 income tax expenses (as a share of net income
before income taxes) averaged 37 percent, compared to
25.8 percent for other S&P Industrial companies.

The U.S. oil and natural gas industry also pays the
federal government significant rents, royalties and lease
payments for production access – totaling more than
$119 billion since 2000. In fact, U.S. oil and natural gas
companies pay tens of millions of dollars to the federal
government in both income taxes and production fees
every single day.

U.S.-based oil and gas companies must structure their
operations and invest substantial capital where the
resource is found rather than where the best tax regime is
located. As a result, U.S.-based oil and gas companies’
overseas income is often subject to very high effective
tax rates. In addition, operations in the U.S. generate
separate state and federal income tax obligations or
payments, causing the industry to have an effective tax
rate above the federal statutory rate of 35 percent.

Retailers are placed in a similar situation as they must
naturally align their locations with customers, which
can lead to higher effective tax rates. Other industries,
however, may have greater flexibility on where they
locate their physical capital or other operations to meet
their customer needs. As a result, they may be able to
establish activities in locations with lower effective tax
rates.

The Administration has proposed over $90 billion in
additional taxes and fees on the oil and natural gas
industry over a 10-year period. According to the
Congressional Research Service, the proposals “…
would make oil and natural gas more expensive for U.S.
consumers and likely increase foreign dependence.”4

In the long run, the negative economic consequences of
higher taxes more than offset any short-term tax revenue
gains. An additional $5 billion in new, annual taxes –
similar to what’s been proposed by the Administration, or
some in Congress – could actually decrease cumulative
government revenue by $29 billion by 2020 according to
an economic analysis by Wood Mackenzie.5 And even
worse, higher taxes could result in the loss of tens of
thousands of jobs between now and 2020.

There is a better way than saddling a troubled economy
with new taxes and fees that hurt consumers and
workers. The oil and natural gas industry should be
allowed to develop the vast energy resources that
belong to the American people. If we open areas that
are currently off-limits to development, and partner with
Canada to develop resources, we could create more than
one million jobs throughout the economy and generate an
additional $127 billion in government revenue by 2020.6

We can either take momentum away from recovery or
put it behind American prosperity.

5 Wood Mackenzie, “Energy Policy at a Crossroads: An Assessment of the Impacts
of Increased Access versus Higher Taxes on U.S. Oil and Natural Gas Production,
Government Revenue, and Employment,” January 2011.